If you buy the wire with the shielding then yes ground one end of the shield to the altertnator ground (mounting bolt). I cut both wires to make the connection, you can cut the one and just remove some of the cover off of the other wire. Cut the black wire with red strip and route that to your switch. The Black wire with blue strip is the one you can tie the lead from the new sensor into to.

Yes get the IAT sensor from Autozone and put that in the air cleaner. But I do recommend moving that sensor closer to the radiator side of the air duct so that engine heat wont affect it as much. Might even get a couple of extra hp out of moving it closer to the radiator.

Main thing you will notice with your engine montitoring system is that when you are looking at the IAT tempature is the big difference in the reading between the two sensors. Also when you switch between the sensors do it quickly. Any slowness in switching will trip the check engine lamp. And the code it gives will tell you that the impedence went high (Open Short or break in the connection of the sensor),

 

So a fast action toggle switch is best.